Labor's economics won't win the election

The usual central issue in most Australian elections is the economy. But just like on so many other policies, Labor's record on economic management has been woeful, writes Peter Reith.

Economics used to be called political economy. In some ways, political economy is a better description because economics is all about politics even though it is a separate discipline and even though, in more recent times, much more is known about how an economy works.

In my view, the 2013 election is going according to the recent majority view, namely, Gillard was taking Labor to oblivion, Rudd is better than Gillard (which is not saying much) and Rudd will still lose.

The Rudd foray into asylum policy was not his preferred political ground. He had no choice. He created the problem and he needs to be seen doing something about it.

His problem now is that there will be no tangible evidence before the election that his latest changes have worked.

This was the point extracted from Rudd by Andrew Bolt on the Bolt Report last Sunday.

Rudd wants to get off the asylum seeker issue as fast as he can. It is one of his main points of political vulnerability. His problem is that none of his announcements on other issues have had enough substance to really let Rudd control the agenda and push the public’s attention to something else.

Gonski is going nowhere because Labor has been fiddling with the numbers: the funding for individual schools is not clear. The Labor premiers are taking the money out of loyalty to Labor whereas the Liberal premiers either want the money (but more) or, like Victoria, they are refusing to hand over control to the Federal Government. The result of this flawed process is that some premiers are not sufficiently confident or satisfied to sign. The Catholic school system has apparently reached its own deal but this must be something of an embarrassment for Labor because the Catholic system will fund their own schools as they see fit. This is not the new fairer and more equitable system promised by Labor.

The usual central issue in most Australian elections is the economy. But that is not working for Labor either, partly because the boat people is also an economic issue and because Labor's record on economic management has been woeful. The fix on the carbon tax may have dampened some of the criticism but the amended, floating tax could easily go up again and is forecast by Treasury to be much higher in the future.

So once you canvas the economic issues that have been in the public arena, the big economic issue is productivity.

In classic Rudd fashion, our new PM has raised productivity as well, even though it is Labor that has failed to address the dreadful productivity performance of recent years and the consequent possible decline in living standards that senior economists like Ross Garnaut have warned us about for many months.

The extent of the challenge was spelt out in the Australian (paywall, July 27, 2013):

Productivity Commission figures show that while productivity growth averaged 2.5 per cent between 1994 and 1999, it fell to zero in the last four years of the Howard government and has been dropping at an average annual rate of 0.7 per cent since.

This followed more political comment by the president of Business Council of Australia Tony Shepherd who said the BCA wants "decisive, real action on the ground that will genuinely address the challenges we face, not joint statements and superficial agreements".

The reregulation of the labour market was based on an outdated model of how a modern workplace works. It is not about them versus us, because there is a lot of human capital in all our employees. It is about the close work relationship and high employee engagement that is fundamental to what we do.

And Innes Willox, the CEO of Australian Industry Group, said a survey of his membership named industrial relations a top priority. According to The Australian, AIG has nominated "140 clauses in the Fair Work act that reduce flexibility".

Needless to say, productivity improvement is essential but not always so easy to calculate although under Labor multifactor productivity has actually fallen.

We now know the election will not be held on August 31. It looks instead like September 21 but it could be as late as end of November. Whatever the election date, economic management will be the number one issue. It can not nor should it be avoided. Governments can express issues on everything from drugs to religion and gay marriage, but as usual the public want good economic management so they can spend their hard earned dollars how they want and live as they want without being told what to do by pesky interfering governments.

Peter Reith was a senior cabinet minister in the Howard government from 1996 to 2001 and then a director of the European Bank for Reconstruction and Development from 2003 to 2009. View his full profile here.

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